Imminently confronting its own mortality, the advertising industry as we know it has been looking to behavioral economics to keep food on the table. Behavioral economics is cool and scary. Daniel Kahneman’s Thinking, Fast and Slow is the go-to text on the issue; it summarizes the past 50 years of psychology research that created the discipline and won the author his Nobel prize in Economics. If you’ve read the book, skip the next three paragraphs.

In a nutshell, the book explains how we, as thinking folk, have two systems at our disposal as we go about trying to understand the world. System 1 is what generally gets us through life, it deals with things very quickly. When we have a casual conversation, estimate how far away an object is, or drive a car, that’s System 1 doing its thing. For more complex problems the higher level but very lazy System 2 kicks in, like trying to multiply 231 times 371, or actively fact checking a claim.

System 1 is great at what it does, but it uses a number of short-hand tricks that sometimes yield bad outcomes. For instance, System 1 is awful at statistics, so estimations it makes about the likelihood of something happening are usually way off. Much of Thinking, Fast and Slow is a chronicle of these accidental misfires that we make in our thinking, and the situations that bring them about. When advertisers look to behavioral economics to save the day, it’s my opinion that they’re looking for ways to exploit these misfires and make people more likely to buy.

System 2 is also good at what it does, but with practice. When it’s called to action, it deals with the world in logical terms. It tends to be very lazy. In reading the above 231 times 371, I’m sure you didn’t bother to actually calculate the result (I didn’t). If you go back and try to do the multiplication, you’ll feel the blood flow to your brain as you develop a strategy to produce the result. This is called cognitive strain. Whenever you feel it, System 2 is dealing with the world for you.

This brings me to facebook Timeline. Try scanning someone’s Timeline. It’s a very unpleasant experience. When information is organized in a list, it’s trivially easy to scan it, but with Timeline your eye has to dart around and try to combine the layout into an understanding of what the person’s been up to. It induces cognitive strain and brings System 2 online.

There was an interesting post a few weeks ago about how Timeline’s core goal is to reconceptualize brands in the eyes of users, and integrate them into the stream of data we see. When we usually see ads, System 1 processes and largely ignores them. But if Timeline causes System 2 to come online, then displays ads to it, facebook will be changing the way our brains process advertising. Timeline also makes branded posts (ads) look nearly identical to the actual content we’re on facebook to see, so it follows that they’d be processed similarly.

Is it as effective? More effective? Less effective? As end users, we lack the data to test it, but facebook does not. Some A/B testing and trading of IP addresses with online stores and it would be trivially easy to tell if these ads are more effective than the usual ones. With 2011 revenues of about $3.3 billion spread across 800,000,000 users, they’re making about $4 a user a year. That’s pathetic given how much the site is used. By contrast, the movie industry, despite trying to weather some radical disruption, collects $10-15  for 90 minutes of entertainment. (Different business models, I recognize.)

This all reminds of a recent quote about the state of the world. Paraphrasing, “the smartest people in the world are working hard to come up with ways to get you to click on ads.” (Edit: source) And it’s absolutely true, Google, Facebook, Microsoft and the like are brain trusts. People recognize that advertising is about psychology, and the bible of psychological decision making was just published. Why wouldn’t these smart people try to use these new tools to make more money? Timeline is just awful, but these people are too smart and skilled to make something so bad accidentally.

It’s on a par with Zynga’s behavior, but if anything that just makes it more facebook-like, not less.